GREAVESCOTNSEQ2 FY24November 8, 2023

Greaves Cotton Limited

7,478words

57turns

7analyst exchanges

3executives

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Management on call

Arup Basu

Managing Director, GCL

Nagesh Basavanahalli

Non-Executive Vice

Sanjay Behl

CEO, GEMPL, Mr. Narasimha Jayakumar – CEO, Greaves Retail and Mr.

Key numbers — 40 extracted

10%

usly, we are expanding our international business footprint which currently constitutes just over 10% of our revenues. In addition, we are also expanding the industry segments we serve, for example,

Rs. 381 crore

el Controlinkage. In Q2 FY24, the Engines business plus Excel Controlinkage delivered revenues of Rs. 381 crores that was 58% higher Y-o-Y and 28% higher Q-o-Q. The Engines business delivered revenues of Rs.

58%

FY24, the Engines business plus Excel Controlinkage delivered revenues of Rs. 381 crores that was 58% higher Y-o-Y and 28% higher Q-o-Q. The Engines business delivered revenues of Rs. 313 crores that

28%

iness plus Excel Controlinkage delivered revenues of Rs. 381 crores that was 58% higher Y-o-Y and 28% higher Q-o-Q. The Engines business delivered revenues of Rs. 313 crores that was 30% higher Y-o-Y

Rs. 313 crore

ores that was 58% higher Y-o-Y and 28% higher Q-o-Q. The Engines business delivered revenues of Rs. 313 crores that was 30% higher Y-o-Y and 22% higher Q-o-Q. EBITDA improved to 10.5% in Q2 FY24 from 3.5% in

30%

er Y-o-Y and 28% higher Q-o-Q. The Engines business delivered revenues of Rs. 313 crores that was 30% higher Y-o-Y and 22% higher Q-o-Q. EBITDA improved to 10.5% in Q2 FY24 from 3.5% in Q2 FY23. Over

22%

er Q-o-Q. The Engines business delivered revenues of Rs. 313 crores that was 30% higher Y-o-Y and 22% higher Q-o-Q. EBITDA improved to 10.5% in Q2 FY24 from 3.5% in Q2 FY23. Overall, the diversity of

10.5%

red revenues of Rs. 313 crores that was 30% higher Y-o-Y and 22% higher Q-o-Q. EBITDA improved to 10.5% in Q2 FY24 from 3.5% in Q2 FY23. Overall, the diversity of our customer segments, platform, tec

3.5%

3 crores that was 30% higher Y-o-Y and 22% higher Q-o-Q. EBITDA improved to 10.5% in Q2 FY24 from 3.5% in Q2 FY23. Overall, the diversity of our customer segments, platform, technologies and applicati

17%

7,000 in April to June, which is Q1 of the current financial year. It is a decline Q-o-Q of about 17%. This was led partly by the reduction in FAME II subsidy incentive on electric scooters effective

rs,

h were implemented from 1st of April of 2023. However, amidst this slowdown in Electric 2-wheelers, Ampere continues to be amongst the top five Electric Scooters in India in terms of retail sales.

23%

obility, TWU for vehicle leasing to fleet customers. The 3-wheeler market witnessed a very high 23% Q-o-Q growth in Q2 with both L3 and L5 formats growing in strong double digits. Notably Greaves E

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Guidance — 20 items

Akhila Balachandra

opening

“This puts us on track to our historical trend of 13 plus percentage margins of pre COVID levels.”

Ashin

“So, could you please give us more color on to that and how do we see this business going forward?”

Sanjay Behl

“Coming to your profitability question, our 3-wheeler business is very close to operating margin breakeven now and going forward with some growth on this number, we should be having a profitable kind of a margin on this business plan.”

Sanjay Behl

“Going forward with subsidy getting restored, we have been declaring EBITDA positive quarter.”

Sanjay Behl

“The decision whether we want to go for it or not, I think will be prospective and I don't want to really take on that at this stage.”

Amy Pirani

“Anyway the subsidies have come down and going forward you have the newer launches.”

Amy Pirani

“So, as we look into next year assuming a post subsidy world, how should we think about the profitability with the overall portfolio that you intend to have on the Electric 2-wheeler side?”

Sanjay Behl

“Going forward, as we get the subsidy, as you know, it now has been brought down from Rs.”

Sanjay Behl

“And then we will use that partly to become even more competitive and mobilize our scale and partly of course, it will be a margin accretive incentive that we will do.”

Amy Pirani

“Any of your vehicles are you trying to get them certified for PLI and what benefit could be next year?”

Risks & concerns — 5 flagged

Q2 was the first quarter of electric two-wheeler industry, which represented Q-o-Q decline after many quarters of steady growth.

— Sanjay Behl

However, amidst this slowdown in Electric 2-wheelers, Ampere continues to be amongst the top five Electric Scooters in India in terms of retail sales.

— Sanjay Behl

One area where we saw a lot of pressure in the early part of last year was the overall commodity cycle and that led to an increase in the raw material cost for some of our products segments.

— Akhila Balachandra

As shared by Sanjay earlier, the current Electric Mobility results are without the impact of any subsidy starting 1st April this year.

— Akhila Balachandra

And hence the difference that has come now come up and that led to some slowdown in the market.

— Sanjay Behl

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Q&A — 7 exchanges

Thanks for the opportunity and congratulations for a decent set of numbers. My first question is regarding the standalone business. So, within the Engine side, we've seen very good growth during the quarter on the Engine business and also the profitability in the Engine business has improved significantly over the last few quarters. So, could you please give us more color on to that and how do we see this business going forward?

Sanjay Behl

Yes, the Engine business grew at about 22%. I'll ask Dr. Arup Basu to give a little more commentary on that. Essentially, we've been pursuing this fuel agnostic approach and expansion of the product portfolio to include multiple applications. So, the combination of these two is allowing us to expand our application segments from Automobile or Mobility solutions to other Engineering applications where you have Engines. The second leg is our increasing focus on international business as I mentioned and exports. The third is around the control on costs, which is embedded in our system. So, there

First of all, clarification on this subsidy issue, you have paid the government around Rs. 140 crores like you mentioned. The Rs. 360 crores which you mentioned is pending for as of the first half of this year, are you still trying to claim that, or you have given up that claim also with the government?

Sanjay Behl

Let me clarify. As I had actually mentioned in my commentary that we submitted the money without accepting any allegations and actually without prejudice. So, we do reserve our legal rights at this point of time. The decision whether we want to go for it or not, I think will be prospective and I don't want to really take on that at this stage. And the vehicle that you're selling now starting Q3, are you still continuing to build that you will receive the FAME subsidy or right now you are selling without FAME subsidy for now? As I again mentioned there in my commentary that we are waiting confi

My first question is with regard to the 3-wheelers, when you say operating margin, is it EBITDA margins, or just to clarify, profitable?

Sanjay Behl

For 3-wheelers, I'm talking about operating margin to start with and then of course, there will be PBT which will be break even. The operating margin as per your definition is EBITDA or gross margin? Just to clarify. Operating margin, I'm talking about EBITDA margin. The second question related to the same is, if you look at 3-wheeler and 2-wheeler, you are one of the few guys who operate in both the spaces. I wanted to understand considering the position where you are, will you be able to make operating margins much faster in 3-wheelers. 9 | Greaves Cotton Limited (www.greavescotton.com) Can

I just wanted to sort of circle back on the exciting announcement that you're sort of released to the rest of the shareholders about Abdullatif Jameel and their investment into Greaves, Electric Mobility. And since their sort of investment has been around a year and a half, I think there is not a lot of information regarding the potential synergies going forward. So, for the benefit of Greaves shareholders, can you spend some time throwing some light on the last one year? Since the investment was made, how have we evolved as a company by having them not only as a financial partner, but also as

Nagesh

As you alluded, ALJ came in as a strategic investor more than about 15 months ago, June of last year to be precise, right? They are a global distributor around in 30 plus countries bring in international depth, have worked with other EV companies like Rivian, which went through its own startup phase, etc So, clearly, they are valuable members of the board and help our management from time to time. So, they are a minority investor. They are a valuable addition to our extended team, and I think as Sanjay and the team go international, I think they are going to be even more valuable given their i

Sir, this is with regard to the 2-wheeler market. Just wanted to understand at this point in time, maybe October, November and maybe take a reference point of our 2-wheeler Primus, two 450 model for them and Ola S1, just wanted to understand that what is the difference in let's say the ex-showroom price or net on road price between us and them? Is it largely the subsidy that's the first question. And this is linked to the numbers on the ground what we're seeing on the Vahan dashboard, our numbers have come down significantly, while the numbers for the other are reasonably up. Just wanted to un

Sanjay Behl

We are amongst the top five Electric 2-wheelers in the country at this stage and I'll take all parts of the question pretty quickly. So, we are at about a 6.3% market share of Electric 2-wheeler in Q2. Now you rightly said that compared to last year, which was about 12%, this has come down, but there has been also an explanation to that in the last six months where we have not accounted for any subsidy. We have not availed any subsidy from the Government, and we have not really been able to pass it down to the customers. So, that has created an asymmetrical competition versus some of the other

Thank you for the opportunity. So, my first question is in regard to the EBITDA margins for E-mobility business. So, if you could comment, how do you see this in the coming quarters and what is the broad trajectory for the next one or two years?

Sanjay Behl

Overall EBITDA margins, if you look at the quarter four of last financial year, we were profitable in 2-wheelers and we had a marginal negative in our 3-wheeler. Going forward, at this point of time, I don't want to speculate there, but we are coming very close to operating margin break even in our 3-wheeler business. And 2-wheeler continues to be impacted by subsidy, as and when the subsidy gets regularized and if it gets regularized, we will be coming to unit economics positive of even 2-wheeler business. 14 | Greaves Cotton Limited (www.greavescotton.com) And regarding our GCL plus Excel, t

Thank you all for attending. just giving a quick summary here, our journey that we started, when during the COVID era, we took out costs and the cost journey continues like Dr. Basu was talking about and then the operating margin improvements are visible. Our journey on a fuel agnostic path, which was an end to end diesel plus, CNG plus Electric continues. Our journey on being a fuel agnostic player in addition and also looking at forward-looking skill sets i.e., Mechanical to Mechatronics, to Electronics and Sensor continues. So, thank you all for your attention and happy to take questions of

Management

Speaking time

Sanjay Behl

Moderator

Amy Pirani

Pramod Amte

Ashin

Nagesh

Dr. Arup Basu

Siddhanth Shah

Sonal

Rishikesh

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Opening remarks

Nagesh Basavanahalli

Good morning and welcome to the Q2 and H1 FY2024 Earnings Call for Greaves Cotton Limited. I trust you're all in good health and I'll hand it over to the respective business CEOs and the CFO for a more detailed review and discussion. At a very high level, over the years we have been committed to innovation, growth, and I'm pleased to report that our journey continues. Greaves Cotton delivered a robust performance in the Q2 and H1 FY2024, reflecting the resilience and the diverse portfolio of our various business segments. Our strategic journey of being a key player in the full stack last mile mobility ecosystem continues with our businesses, whether they are Greaves Engineering, Electric Mobility, and Retail. Our mission and purpose of empowering millions of lives and livelihoods through sustainable mobility solutions continues. So, now with that, let me hand it over to Dr. Arup Basu, who will discuss Greaves Engineering. Thank you.

Dr. Arup Basu

Good morning, ladies and gentlemen. This morning my commentary is on the performance of the B2B products portfolio that is engines and Excel Controlinkage. Accelerator, Brake, Clutch, Steering Wheel, Gear Shift, and Park Brake are the six components used to control any vehicle, either physically using rods or cables or electronically using sensors. Excel Controlinkage custom designs, develops and manufactures this entire product range of controls and therefore represents a natural fit to our portfolio. We are making good progress on our ongoing program to build a future ready fuel agnostic product portfolio to gradually wean us from a dependence on demand for Diesel Engines. The 2 | Greaves Cotton Limited (www.greavescotton.com) Engine and Genset portfolio are being augmented with greener fuel agnostic variants that can use CNG, Biodiesel, and Ethanol blended fuels. In addition, our Genset portfolio is fully CPCB 4+ compliant. Simultaneously, we are expanding our international business

Sanjay Behl

I'll take over from Arup. Thank you, Arup. I'm Sanjay Behl. I'm going to give you the commentary on Greaves Electric Mobility performance in Q2 FY2024. Q2 was the first quarter of electric two-wheeler industry, which represented Q-o-Q decline after many quarters of steady growth. The industry recorded 181,000 registrations of Electric Scooters between July to September, as compared to 217,000 in April to June, which is Q1 of the current financial year. It is a decline Q-o-Q of about 17%. This was led partly by the reduction in FAME II subsidy incentive on electric scooters effective from 1st June of 2023 and partly by an adverse end consumer price impact owing to the AIS phase-II regulations which were implemented from 1st of April of 2023. However, amidst this slowdown in Electric 2-wheelers, Ampere continues to be amongst the top five Electric Scooters in India in terms of retail sales. Furthermore, Ampere has strengthened its retail reach by launch on multiple new E-commerce platfor

Narasimha Jayakumar

Good morning, ladies and gentlemen. This is Narasimha Jayakumar. I'm the CEO of Greaves Retail, and I’m very excited to be here. Greaves Retail, as some of you are aware, is a leading multi fuel spares and services business that spans the entire lifecycle of an asset, which is basically a 3-wheeler, electric 3-wheeler or small commercial vehicle. The core proposition continues to be high vehicle up time and driving asset productivity. I am very pleased to say that Greaves Retail had a solid Q2, revenues were up 9% y-o-y at Rs. 146 crores. On a YTD basis, we touched Rs. 284.5 crores, up 12%. Profitability continues to be strong with EBITDA margins of 20% plus and the business continues to expand both domestically and exports for spare parts and services. Exports of our multi brand spare parts has expanded to newer markets like Sri Lanka, Bangladesh and Africa and we witnessed very strong, robust growth for our multi brand 3-wheeler spare parts covering various fuel types. We’re seeing v

Akhila Balachandra

Thanks Narasimha, and good morning everyone. This is Akhila Balachandar, CFO of Greaves Cotton. I'm happy to report our consolidated revenue of Rs. 727 crores for Q2 FY24 and Rs. 1,295 crores for H1 FY24. On a standalone basis for Q2 FY24, Greaves Cotton has reported a revenue of Rs. 459 crores. Excel, our new acquisition, reported a revenue of Rs. 68 crores and Electric Mobility reported a revenue of Rs. 207 crores. Greaves Engines and Greaves Retail both have delivered robust growth both Q-o-Q and on a Y-o-Y basis. For H1FY24, Greaves Cotton reported a revenue of Rs. 855 crores, up by 14% compared to last year and on a consolidated basis, H1 FY2024 revenue was Rs. 1,295 crores. The good news is that the acquisition and integration of Excel into the Greaves fold, the revenues from the GCL plus Excel segment for H1 FY24 stands at Rs. 962 crores. This gives us a strong base to diversify and enrich our core product portfolio. On the margins, GCL standalone EBITDA margins are now firmly i

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